How to Separate Personal and Business Credit

Small business owners often make the mistake of not separating their personal and business credit scores. This means that if the business is ever in trouble, the business owner personal finances may take a hit. Additionally, creditors in the modern business landscape are moving away from accepting personal credit alone as a guide for the financial health of a business. Instead, smart creditors are taking advantage of tools that analyze a blend of owners' personal and business credit reports as a better indicator of the financial health of a business. For example, most merchant service accounts will require a check on a small business' bank rating and the owner's credit report.

It is also important to understand the different between a personal guarantee and cosigning on a loan. 

  1. In general, being a cosigner of of a credit account means that both entities are equally liable in the event of default. The accounts will report on the cosigner and the signers credit.

    • Ex: You cosign for your business' credit; the loan appears on your personal credit and the business' credit reports.

  2. Being a guarantor of a credit account means that you are only liable should the signer default.

    • Ex: You personally guarantee your business' credit; the credit account will only appear on your business credit report.

If you are interested in learning more, check out the links below.

LEARN HOW TO BUILD BUSINESS CREDIT WITHOUT USING A PERSONAL CREDIT GUARANTEE

OR

Learn How Personal Credit Works!

Small Business Finance, Small Business CreditOusmane Toure